Cable set-top boxes instead of phones?

General Instrument and Lucent Technologies are looking to integrate hardware and software so cable operators can bundle phone service with Net access and video programming.

January 2, 20024:43 PM PST

Will next generation cable set-top boxes replace your phone?

Probably not. But the companies seem like they're trying. Companies such as General Instrument and Lucent Technologies are hard at work on integrating hardware and software so that cable operators like AT&T and Time Warner can bundle telephony services along with a package of Internet access, video programming and even wireless phone service.

"Voice is really one of the killer applications for data-over-cable services, because it's such a huge business already," said Lief Koepsel, director of marketing for Com21, one of the four largest cable modem equipment makers. "In the same way people can choose between gas and electric, they will be offered data services from the telco or cable company in 10 years."

General Instrument, which is in the process of being acquired by Motorola, has entered into a joint development and marketing agreement with Lucent. The deal means GI equipment in customer's homes will be able to talk with Lucent equipment used in a cable operator's main office, and in the process, enable lower cost telephone services to be made available sooner from cable companies, hopefully.

AT&T's purchase of cable operators Tele-Communications Inc. (TCI) and pending deal with Media One provides the company with a means to offer local phone service without having to go through local telephone companies like Pacific Bell or Bell Atlantic.

But, as is the case with many new technologies, many questions remain unresolved. Cable operators don't seem sure yet about whether telephony, video and data services will be delivered through the set-top box residing in the living room, or a new class of devices called "residential gateways."

Cable operators have been looking at the set-top as a hub that phones and cameras and other devices hang off, said Dwight Sakuma, director of consumer products and services at GI. Sakuma thinks that two or three years down the road, when telephony services are more prevalent, they will eventually have to use both a gateway box and the set-top.

Residential gateway appliances basically look like a utility box that hangs outside a customer's home. A cable line is hooked up to the box, which then controls the flow of data to other devices such as the set-top, a PC, phones and handheld gadgets.

"Cable companies will try a bunch of things and see if the spaghetti sticks to the wall," said Jim Chiddix, Time Warner cable's chief technology officer.

Koepsel thinks the set-top won't wind up offering telephony functions because it would require technicians to enter a customer's home for installation and repair. The current model used by telcos--they are responsible for the wire up to the utility box--works fine, he said. Com21 is eyeing the production of such devices but has not announced plans yet, he noted.

In the case of AT&T, the company signed a deal in February with Time Warner cable to provide telephony services over Time Warner's cable network. The deal hasn't been finalized as of 11 months later because AT&T has been busy integrating Media One into its corporate structure, say Time Warner representatives.

With AT&T somewhat preoccupied , no decisions about how to build the infrastructure for the service have been made, let alone whether the set-top or the gateway device will ultimately wind up as the main control point for data in the home.

Cahners In-Stat Group predicts the residential gateway market will grow from $200 million in 2000 to $2.4 billion in 2003.